##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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FORM 10-Q



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(Mark One)



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



FOR THE QUARTERLY PERIOD ENDED JUNE 26, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



FOR THE TRANSITION PERIOD FROM
 TO



Commission File Number: 333-110029



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Broder Bros., Co.

(Exact name of Registrant as specified in its charter)



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|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Michigan                                                      |  | 38-1911112                         
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)
|                                                              | 
|401 E. Hunting Park Avenue, Philadelphia, PA                  |  | 19124                              
|(Address of principal executive office)                       |  | (Zip code)                         



(215) 291-6140

(Registrants telephone number, including area code)



Not Applicable

(Former name, former address and former fiscal year, if changed since last report)



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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that each co-registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes ̈No x



As of August 9, 2004, there were 1,000,000 shares of Class L, Series 1 common stock outstanding; 966,791 shares of Class L,
Series 2 common stock outstanding; 2,452,012 shares of Class L, Series 3 common stock outstanding; 2,370,584 shares of Class L, Series 4 common stock outstanding; 10,211,111 Class A common stock outstanding; and 25,282,963 shares of common stock
outstanding.



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1



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##### Table of Contents

BRODER BROS., CO.



Quarterly Report for the Period Ended June 26, 2004



Table of Contents



|                                                                                                         |  |     
|-------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                         |  | PAGE
|                                                                                                         | 
|PART I. Financial Information                                                                            |  |     
|                                                                                                         | 
|Item 1.
Financial Statements (Unaudited)                                                                 |  | 3   
|                                                                                                         | 
|Consolidated Balance Sheets as of June 26, 2004 and December 27, 2003                                    |  | 3   
|                                                                                                         | 
|Consolidated Statements of Operations for the three and six months ended June 26, 2004 and June 28, 2003 |  | 4   
|                                                                                                         | 
|Consolidated Statements of Cash Flows for the six months ended June 26, 2004 and June 28, 2003           |  | 5   
|                                                                                                         | 
|Notes to Consolidated Financial Statements                                                               |  | 6   
|                                                                                                         | 
|Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations            |  | 15  
|                                                                                                         | 
|Item 3.
Quantitative and Qualitative Disclosures About Market Risk                                       |  | 21  
|                                                                                                         | 
|Item 4.
Controls and Procedures                                                                          |  | 21  
|                                                                                                         | 
|PART II. Other Information                                                                               |  |     
|                                                                                                         | 
|Item 1.
Legal Proceedings                                                                                |  | 22  
|                                                                                                         | 
|Item 2.
Changes in Securities and Use of Proceeds                                                        |  | 22  
|                                                                                                         | 
|Item 3.
Defaults Upon Senior Securities                                                                  |  | 22  
|                                                                                                         | 
|Item 4.
Submission of Matters to a Vote of Security Holders                                              |  | 22  
|                                                                                                         | 
|Item 5.
Other Information                                                                                |  | 22  
|                                                                                                         | 
|Item 6.
Exhibits and Reports on Form 8-K                                                                 |  | 22  
|                                                                                                         | 
|Signatures                                                                                               |  | 23  



Broder Bros., Co. (the
Company) is the issuer of 11.25% Senior Notes (Senior Notes) due October 15, 2010. The Senior Notes were the subject of an exchange offer that was registered with the Securities and Exchange Commission (SEC) (File
No. 333-110029). In June 2003, the Company completed the purchase of T-Shirts & More, Inc. (TSM) through an asset purchase agreement, and in September 2003, the Company acquired all of the outstanding capital stock of Alpha Shirt
Holdings, Inc., pursuant to a stock purchase agreement entered into in July 2003. As used herein and except as the context otherwise may require, the Company, we, us, our, or Broder  means,
collectively, Broder Bros., Co. and all of its consolidated subsidiaries. For periods after the acquisition of Alpha Shirt Holdings, Inc. (see Note 3), Alpha refers to the former business operated by Alpha Shirt Holdings, Inc. and now
operates as a division of Broder Bros., Co.



2



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##### Table of Contents

Part I. Financial Information



|Item 1. | Financial Statements
|------- | --------------------



BRODER BROS., CO. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

June 26, 2004 and December 27, 2003



|                                                                                                                                                                                                 |  |                                                |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                                                 |  | 2004                                           |         |   | 2003 |  
|                                                                                                                                                                                                 |  | (unaudited)                                    |         |   |      |  
|                                                                                                                                                                                                 |  | (dollars in thousands,except per shareamounts) |        
|ASSETS                                                                                                                                                                                           |  |                                                |         |   |      |   |         |  
|Current assets                                                                                                                                                                                   |  |                                                |         |   |      |   |         |  
|Cash                                                                                                                                                                                             |  | $                                              | 4,379   |   |      | $ | 3,175   |  
|Accounts receivable, net of allowance for doubtful accounts of $3,140 at June 26, 2004 and $2,820 at December 27, 2003                                                                           |  |                                                | 83,147  |   |      |   | 67,508  |  
|Finished goods inventory                                                                                                                                                                         |  |                                                | 144,685 |   |      |   | 131,585 |  
|Prepaid and other current assets                                                                                                                                                                 |  |                                                | 2,735   |   |      |   | 5,375   |  
|Deferred income taxes                                                                                                                                                                            |  |                                                | 11,567  |   |      |   | 10,374  |  
|                                                                                                                                                                                                 |  |                                                |         |   |      |   |         |  
|Total current assets                                                                                                                                                                             |  |                                                | 246,513 |   |      |   | 218,017 |  
|Fixed assets, net                                                                                                                                                                                |  |                                                | 14,840  |   |      |   | 16,339  |  
|Goodwill                                                                                                                                                                                         |  |                                                | 137,800 |   |      |   | 137,969 |  
|Other intangibles                                                                                                                                                                                |  |                                                | 78,556  |   |      |   | 85,174  |  
|Deferred financing fees, net                                                                                                                                                                     |  |                                                | 15,941  |   |      |   | 17,363  |  
|Deferred income taxes                                                                                                                                                                            |  |                                                | 3,202   |   |      |   | 3,519   |  
|Other assets                                                                                                                                                                                     |  |                                                | 501     |   |      |   | 501     |  
|                                                                                                                                                                                                 |  |                                                |         |   |      |   |         |  
|Total assets                                                                                                                                                                                     |  | $                                              | 497,353 |   |      | $ | 478,882 |  
|                                                                                                                                                                                                 |  |                                                |         |   |      |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                             |  |                                                |         |   |      |   |         |  
|Current liabilities                                                                                                                                                                              |  |                                                |         |   |      |   |         |  
|Current portion of long-term debt and capital lease obligations                                                                                                                                  |  | $                                              | 1,045   |   |      | $ | 1,424   |  
|Accounts payable                                                                                                                                                                                 |  |                                                | 93,357  |   |      |   | 80,235  |  
|Accrued expenses                                                                                                                                                                                 |  |                                                | 11,006  |   |      |   | 10,755  |  
|Accrued interest                                                                                                                                                                                 |  |                                                | 4,824   |   |      |   | 6,085   |  
|                                                                                                                                                                                                 |  |                                                |         |   |      |   |         |  
|Total current liabilities                                                                                                                                                                        |  |                                                | 110,232 |   |      |   | 98,499  |  
|Long-term debt and capital lease obligations, net of current portion                                                                                                                             |  |                                                | 276,486 |   |      |   | 261,943 |  
|Deferred income taxes                                                                                                                                                                            |  |                                                | 39,341  |   |      |   | 41,162  |  
|Other long-term liabilities                                                                                                                                                                      |  |                                                | 8,960   |   |      |   | 11,670  |  
|Redeemable securities, net of employee note receivable                                                                                                                                           |  |                                                | 1,435   |   |      |   |        |  
|                                                                                                                                                                                                 |  |                                                |         |   |      |   |         |  
|Total liabilities                                                                                                                                                                                |  |                                                | 436,454 |   |      |   | 413,274 |  
|Redeemable securities                                                                                                                                                                            |  |                                                |         |   |      |   |         |  
|Class A and L, Series 1 and 2 common stock, net of employee note receivable                                                                                                                      |  |                                                |        |   |      |   | 718     |  
|Commitments and contingencies                                                                                                                                                                    |  |                                                |         |   |      |   |         |  
|Shareholders equity                                                                                                                                                                             |  |                                                |         |   |      |   |         |  
|Class L, Series 1 common stock; par value $0.01 per share; 2,000,000 shares authorized; 963,637 and 958,182 issued and outstanding (aggregate
liquidation preference of $25,295 and $23,648)     |  |                                                | 10      |   |      |   | 10      |  
|Class L, Series 2 common stock; par value $0.01 per share; 2,000,000 shares authorized; 931,635 and 926,362 issued and outstanding (aggregate
liquidation preference of $17,002 and $15,702)     |  |                                                | 10      |   |      |   | 9       |  
|Class L, Series 3 common stock; par value $0.01 per share; 4,000,000 shares authorized; 2,431,202 and 2,452,012 issued and outstanding
(aggregate liquidation preference of $63,819 and $60,516) |  |                                                | 24      |   |      |   | 25      |  
|WarrantsClass L, Series 3                                                                                                                                                                       |  |                                                | 1,292   |   |      |   | 1,292   |  
|Class L, Series 4 common stock; par value $0.01 per share; 4,000,000 shares authorized; 2,350,465 and 2,370,584 issued and outstanding
(aggregate liquidation preference of $42,895 and $40,181) |  |                                                | 24      |   |      |   | 24      |  
|Class A, common stock; par value $0.01 per share; 15,000,000 shares authorized; 9,695,252 and 9,640,373 issued and outstanding                                                                   |  |                                                | 96      |   |      |   | 96      |  
|Class B, common stock; par value $0.01 per share; 35,000,000 shares authorized; 25,068,390 and 25,282,963 issued and
outstanding                                                                 |  |                                                | 251     |   |      |   | 253     |  
|Additional paid-in capital                                                                                                                                                                       |  |                                                | 107,451 |   |      |   | 107,840 |  
|Employee note receivable                                                                                                                                                                         |  |                                                |        |   |      |   | (414    | )
|Accumulated other comprehensive income                                                                                                                                                           |  |                                                | (177    | ) |      |   | (244    | )
|Accumulated deficit                                                                                                                                                                              |  |                                                | (48,062 | ) |      |   | (44,001 | )
|Treasury Stock, 100,000 shares of Class A common stock, at cost                                                                                                                                  |  |                                                | (20     | ) |      |   |        |  
|                                                                                                                                                                                                 |  |                                                |         |   |      |   |         |  
|Total shareholders equity                                                                                                                                                                       |  |                                                | 60,899  |   |      |   | 64,890  |  
|                                                                                                                                                                                                 |  |                                                |         |   |      |   |         |  
|Total liabilities and shareholders equity                                                                                                                                                       |  | $                                              | 497,353 |   |      | $ | 478,882 |  
|                                                                                                                                                                                                 |  |                                                |         |   |      |   |         |  



The accompanying notes
are an integral part of the consolidated financial statements.



3



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##### Table of Contents

BRODER BROS., CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Six Months Ended June 26, 2004 and June 28, 2003



|                                                                              |  |                                 |         |   |                                 |   |        |                               |  |   |                                                         |   |  |   |         |  
|----------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------- | - | ------ | ----------------------------- |  | - | ------------------------------------------------------- | - |  | - | ------- | -
|                                                                              |  | Three MonthsEnded June 26, 2004 |         |   | Three MonthsEnded June 28, 2003 |   |        | Six MonthsEnded June 26, 2004 |  |   | Six MonthsEnded June 28, 2003 (As restated, see Note 1) |  
|                                                                              |  | (unaudited)                     |        
|                                                                              |  | (dollars in thousands)          |        
|Net sales                                                                     |  | $                               | 227,298 |   |                                 | $ | 98,112 |                               |  | $ | 404,058                                                 |   |  | $ | 174,031 |  
|Cost of sales                                                                 |  |                                 | 186,479 |   |                                 |   | 82,974 |                               |  |   | 332,148                                                 |   |  |   | 146,938 |  
|                                                                              |  |                                 |         |   |                                 |   |        |                               |  |   |                                                         |   |  |   |         |  
|Gross profit                                                                  |  |                                 | 40,819  |   |                                 |   | 15,138 |                               |  |   | 71,910                                                  |   |  |   | 27,093  |  
|Warehousing, selling and administrative                                       |  |                                 | 30,773  |   |                                 |   | 12,541 |                               |  |   | 62,049                                                  |   |  |   | 26,306  |  
|Restructuring and asset impairment charges                                    |  |                                 | 1,613   |   |                                 |   |       |                               |  |   | 2,274                                                   |   |  |   |        |  
|                                                                              |  |                                 |         |   |                                 |   |        |                               |  |   |                                                         |   |  |   |         |  
|Total operating expenses                                                      |  |                                 | 32,386  |   |                                 |   | 12,541 |                               |  |   | 64,323                                                  |   |  |   | 26,306  |  
|                                                                              |  |                                 |         |   |                                 |   |        |                               |  |   |                                                         |   |  |   |         |  
|Income from operations                                                        |  |                                 | 8,433   |   |                                 |   | 2,597  |                               |  |   | 7,587                                                   |   |  |   | 787     |  
|Other (income) expense                                                        |  |                                 |         |   |                                 |   |        |                               |  |   |                                                         |   |  |   |         |  
|Interest                                                                      |  |                                 | 7,243   |   |                                 |   | 2,260  |                               |  |   | 14,600                                                  |   |  |   | 4,587   |  
|Change in fair value of interest rate swaps and periodic net swap settlements |  |                                 | (1,018  | ) |                                 |   | 19     |                               |  |   | (1,111                                                  | ) |  |   | (140    | )
|Amortization of FAS 133 transition adjustment                                 |  |                                 | 50      |   |                                 |   | 72     |                               |  |   | 100                                                     |   |  |   | 144     |  
|Loss on debt conversion                                                       |  |                                 |        |   |                                 |   | 1,859  |                               |  |   |                                                        |   |  |   | 1,859   |  
|Other, net                                                                    |  |                                 | 413     |   |                                 |   | (106   | )                             |  |   | 434                                                     |   |  |   | (158    | )
|                                                                              |  |                                 |         |   |                                 |   |        |                               |  |   |                                                         |   |  |   |         |  
|Total other expense                                                           |  |                                 | 6,688   |   |                                 |   | 4,104  |                               |  |   | 14,023                                                  |   |  |   | 6,292   |  
|                                                                              |  |                                 |         |   |                                 |   |        |                               |  |   |                                                         |   |  |   |         |  
|Income (loss) before income taxes                                             |  |                                 | 1,745   |   |                                 |   | (1,507 | )                             |  |   | (6,436                                                  | ) |  |   | (5,505  | )
|Income tax provision (benefit)                                                |  |                                 | 848     |   |                                 |   | 30     |                               |  |   | (2,375                                                  | ) |  |   | (1,458  | )
|                                                                              |  |                                 |         |   |                                 |   |        |                               |  |   |                                                         |   |  |   |         |  
|Net income (loss)                                                             |  | $                               | 897     |   |                                 | $ | (1,537 | )                             |  | $ | (4,061                                                  | ) |  | $ | (4,047  | )
|                                                                              |  |                                 |         |   |                                 |   |        |                               |  |   |                                                         |   |  |   |         |  



The accompanying notes
are an integral part of the consolidated financial statements.



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##### Table of Contents

BRODER BROS., CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 26, 2004 and June 28, 2003



|                                                                               |  |                        |          |   |               |   |         |  
|------------------------------------------------------------------------------ |  | ---------------------- | -------- | - | ------------- | - | ------- | -
|                                                                               |  | June 26,2004           |          |   | June 28, 2003 |  
|                                                                               |  | (unaudited)            |         
|                                                                               |  | (dollars in thousands) |         
|Cash flows from operating activities                                           |  |                        |          |   |               |   |         |  
|Net loss                                                                       |  | $                      | (4,061   | ) |               | $ | (4,047  | )
|Adjustments to reconcile net loss to net cash provided by operating activities |  |                        |          |   |               |   |         |  
|Depreciation                                                                   |  |                        | 3,071    |   |               |   | 1,603   |  
|Amortization                                                                   |  |                        | 8,060    |   |               |   | 1,616   |  
|Deferred taxes                                                                 |  |                        | (1,504   | ) |               |   |        |  
|Amortization of FAS 133 transition adjustment                                  |  |                        | 67       |   |               |   | 96      |  
|Change in fair value of interest rate swaps                                    |  |                        | (1,111   | ) |               |   | (140    | )
|Payable-in-kind interest expense                                               |  |                        |         |   |               |   | 553     |  
|Loss on disposal of fixed assets                                               |  |                        | 812      |   |               |   |        |  
|Loss on debt conversion                                                        |  |                        |         |   |               |   | 1,859   |  
|Loss on early retirement of deferred compensation arrangement                  |  |                        | 185      |   |               |   |        |  
|Changes in operating accounts                                                  |  |                        |          |   |               |   |         |  
|Accounts receivable                                                            |  |                        | (15,639  | ) |               |   | (2,299  | )
|Inventory                                                                      |  |                        | (13,100  | ) |               |   | (10,127 | )
|Prepaid and other                                                              |  |                        | 1,447    |   |               |   | (470    | )
|Accounts payable                                                               |  |                        | 33,998   |   |               |   | 21,386  |  
|Accrued liabilities and other                                                  |  |                        | (1,681   | ) |               |   | (1,792  | )
|                                                                               |  |                        |          |   |               |   |         |  
|Net cash provided by operating activities                                      |  |                        | 10,544   |   |               |   | 8,238   |  
|                                                                               |  |                        |          |   |               |   |         |  
|Cash flows from investing activities                                           |  |                        |          |   |               |   |         |  
|Acquisition of fixed assets                                                    |  |                        | (2,384   | ) |               |   | (1,160  | )
|Acquisition of T-Shirts & More                                                 |  |                        |         |   |               |   | (2,598  | )
|                                                                               |  |                        |          |   |               |   |         |  
|Net cash used in investing activities                                          |  |                        | (2,384   | ) |               |   | (3,758  | )
|                                                                               |  |                        |          |   |               |   |         |  
|Cash flows from financing activities                                           |  |                        |          |   |               |   |         |  
|Borrowings on revolving credit agreement                                       |  |                        | 235,700  |   |               |   | 79,100  |  
|Repayments on revolving credit agreement                                       |  |                        | (220,700 | ) |               |   | (80,300 | )
|Payments of principal on capital lease obligations                             |  |                        | (686     | ) |               |   | (806    | )
|Payment of Kays seller note                                                   |  |                        | (150     | ) |               |   |        |  
|Change in book overdraft                                                       |  |                        | (20,896  | ) |               |   | (3,369  | )
|Payment of deferred compensation arrangement                                   |  |                        | (939     | ) |               |   |        |  
|Proceeds from payment of employee note receivable                              |  |                        | 715      |   |               |   |        |  
|                                                                               |  |                        |          |   |               |   |         |  
|Net cash used in financing activities                                          |  |                        | (6,956   | ) |               |   | (5,375  | )
|                                                                               |  |                        |          |   |               |   |         |  
|Net increase (decrease) in cash                                                |  |                        | 1,204    |   |               |   | (895    | )
|Cash at beginning of period                                                    |  |                        | 3,175    |   |               |   | 2,623   |  
|                                                                               |  |                        |          |   |               |   |         |  
|Cash at end of period                                                          |  | $                      | 4,379    |   |               | $ | 1,728   |  
|                                                                               |  |                        |          |   |               |   |         |  
|Supplemental disclosure of cash flow information                               |  |                        |          |   |               |   |         |  
|Interest paid                                                                  |  | $                      | 10,895   |   |               | $ | 5,042   |  
|                                                                               |  |                        |          |   |               |   |         |  
|Taxes paid                                                                     |  | $                      | 140      |   |               | $ | 409     |  
|                                                                               |  |                        |          |   |               |   |         |  
|Assets acquired as a result of capital lease obligations                       |  | $                      |         |   |               | $ | 1,514   |  
|                                                                               |  |                        |          |   |               |   |         |  



The accompanying notes
are an integral part of the consolidated financial statements.



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##### Table of Contents

BRODER BROS., CO. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



1. The Company and Summary of Significant Accounting Policies



Description of the Company



Broder Bros., Co. and subsidiaries (the Company) is a national
wholesale distributor of imprintable sportswear and related products which include undecorated or blank T-shirts, sweatshirts, polo shirts, fleece, caps, bags and other imprintable accessories that are decorated primarily for advertising
and promotional purposes. Products are sold to screen printers, embroiderers and advertising specialty companies through sixteen distribution centers strategically located throughout the United States. These customers decorate the Companys
products with corporate logos, brands and other promotional images, then sell the imprinted sportswear and accessories to a highly diversified range of end-customers, including Fortune 1000 companies, sporting venues, concert promoters, athletic
leagues, educational institutions and travel resorts.



In June
2003, the Company completed the purchase of T-Shirts & More, Inc. (TSM) through an asset purchase agreement, and in September 2003, the Company acquired all of the outstanding capital stock of Alpha Shirt Holdings, Inc.
(Alpha), pursuant to a stock purchase agreement entered into in July 2003. Immediately after consummation of the acquisition, Alpha and its subsidiaries were merged with and into Broder Bros., Co., except for ASHI, Inc., which became a
direct, wholly owned non-operating subsidiary of the Company.



The Company operates on a 52/53-week year basis with the year ending on the last Saturday of December. The three and six months ended June 26, 2004 and June 28, 2003 each consisted of thirteen weeks and 26 weeks, respectively. Fiscal
periods are identified according to the calendar period that they most accurately represent. For example, the quarterly period ended June 26, 2004 is referred to herein as the three months ended June 30, 2004, and the balance sheet dates
of June 26, 2004 and December 27, 2003 are referred to herein as June 30, 2004 and December 31, 2003, respectively.



Basis of Presentation of Unaudited Interim Financial Information



The unaudited consolidated financial information herein has been prepared in accordance with generally accepted accounting
principles and are in accordance with the Securities and Exchange Commission (SEC) regulations for interim financial reporting. In the opinion of management, the financial statements include all adjustments, consisting only of normal
recurring adjustments, that are considered necessary for a fair presentation of the Companys financial position, results of operations and cash flows for the interim periods. Operating results for the three and six months ended June 30, 2004
are not necessarily indicative of results that may be expected for the entire year. This financial information should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2003 of the Company,
which are included in the Registration Statement on Form S-4 filed with the SEC on April 16, 2004. The Companys Registration Statement was declared effective by the SEC on April 20, 2004.



Principles of Consolidation and Use of Estimates



The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements. These assumptions also affect the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates and assumptions.



Inventory



Inventory is stated at the lower of cost or market using the first-in,
first-out method. Inventory consists of finished goods held for sale. The Companys reported inventory cost consists of the cost of product, net of vendor incentives related to unsold inventory, and certain costs incurred to bring inventory to
its existing condition or location, including freight-in, purchasing, receiving, inspection and other material handling costs. The Company maintains an allowance for potential losses on the disposal of its discontinued and slow moving inventory.



6



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##### Table of Contents

Prior to fiscal year 2003, the Companys inventory cost excluded the costs of purchasing, receiving,
inspecting and handling inventory (which were recorded as warehousing, selling and administrative expenses) and also excluded the capitalization of vendor incentives related to unsold inventory. The Company has determined this historical method of
costing inventory was not in accordance with generally accepted accounting principles. The impact of this erroneous accounting on the prior fiscal years for 2002 and 2001 was not material, and the accumulated pre-tax impact of $175,000 was recorded
as a charge to 2003 cost of sales at the beginning of 2003. In addition, the Company has previously issued unaudited interim financial information for the six months ended June 28, 2003 and the nine months ended September 27, 2003, which also
included the aforementioned erroneous accounting, and resulted in a $104,000 net overstatement of pre-tax earnings for the nine months ended September 27, 2003. The impact on the six months ended June 28, 2003 is detailed as follows:



|                                        |  |                                    |         |   |            |   |      |            |  |   |         |  
|--------------------------------------- |  | ---------------------------------- | ------- | - | ---------- | - | ---- | ---------- |  | - | ------- | -
|                                        |  | Six Months Ended June 30, 2003     |        
|                                        |  | As previouslyreported (a)          |         |   | Adjustment |   |      | AsRestated | 
|                                        |  | (unaudited  dollars in thousands) |        
|Impact on Statement of Operations:      |  |                                    |         |   |            |   |      |            |  |   |         |  
|Net sales                               |  | $                                  | 174,031 |   |            | $ |     |            |  | $ | 174,031 |  
|Cost of sales                           |  |                                    | 146,448 |   |            |   | 490  |            |  |   | 146,938 |  
|                                        |  |                                    |         |   |            |   |      |            |  |   |         |  
|Gross profit                            |  |                                    | 27,583  |   |            |   | (490 | )          |  |   | 27,093  |  
|Warehousing, selling and administrative |  |                                    | 26,306  |   |            |   |     |            |  |   | 26,306  |  
|                                        |  |                                    |         |   |            |   |      |            |  |   |         |  
|Income from operations                  |  |                                    | 1,277   |   |            |   | (490 | )          |  |   | 787     |  
|Total other expense                     |  |                                    | 6,292   |   |            |   |     |            |  |   | 6,292   |  
|                                        |  |                                    |         |   |            |   |      |            |  |   |         |  
|Loss before income taxes                |  |                                    | (5,015  | ) |            |   | (490 | )          |  |   | (5,505  | )
|Income tax benefit                      |  |                                    | (1,262  | ) |            |   | (196 | )          |  |   | (1,458  | )
|                                        |  |                                    |         |   |            |   |      |            |  |   |         |  
|Net loss                                |  | $                                  | (3,753  | ) |            | $ | (294 | )          |  | $ | (4,047  | )
|                                        |  |                                    |         |   |            |   |      |            |  |   |         |  
|Impact on Balance Sheet:                |  |                                    |         |   |            |   |      |            |  |   |         |  
|Inventory                               |  | $                                  | 105,284 |   |            | $ | (490 | )          |  | $ | 104,794 |  
|Accrued expenses                        |  | $                                  | 3,203   |   |            | $ | 196  |            |  | $ | 3,399   |  
|Total shareholders deficit             |  | $                                  | (1,459  | ) |            | $ | (294 | )          |  | $ | (1,753  | )



|(a) | Certain reclassifications to previously reported amounts have been made to this column to conform to the current presentation.
|--- | ------------------------------------------------------------------------------------------------------------------------------



Stock options



The Company accounts for stock-based compensation using the intrinsic value
method described in Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees (APB No. 25) and related interpretations. As permitted by SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123) and in accordance with APB No. 25, compensation cost for stock options is recognized in income based on the excess, if any, of the fair market value of the stock at the date of grant over the amount an
employee must pay to acquire the stock. The following table illustrates the effect on net income/(loss) if the Company had applied the fair value recognition provisions of SFAS No. 123.



|                                                   |  |                   |      |   |                  |   |        |              |  |   |              |   |  |   |        |  
|-------------------------------------------------- |  | ----------------- | ---- | - | ---------------- | - | ------ | ------------ |  | - | ------------ | - |  | - | ------ | -
|                                                   |  | Three MonthsEnded |      |   | Six Months Ended |  
|                                                   |  | June 30,2004      |      |   | June 30,2003     |   |        | June 30,2004 |  |   | June 30,2003 |  
|                                                   |  | (in thousands)    |      |   | (in thousands)   |  
|Net income (loss), as reported                     |  | $                 | 897  |   |                  | $ | (1,537 | )            |  | $ | (4,061       | ) |  | $ | (4,047 | )
|Pro Forma SFAS No. 123 expense, net of related tax |  |                   | (230 | ) |                  |   | (5     | )            |  |   | (235         | ) |  |   | (10    | )
|                                                   |  |                   |      |   |                  |   |        |              |  |   |              |   |  |   |        |  
|Pro Forma net income (loss)                        |  | $                 | 667  |   |                  | $ | (1,542 | )            |  | $ | (4,296       | ) |  | $ | (4,057 | )
|                                                   |  |                   |      |   |                  |   |        |              |  |   |              |   |  |   |        |  



New accounting
pronouncements



In December 2003, the FASB issued a
revision to Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46 or the Interpretation) which was first issued in January 2003 and requires the consolidation of variable interest entities, as
defined. For Broder, variable interest entities created after December 31, 2003, require application of the provisions of FIN 46 immediately. For all previously existing entities subject to FIN 46, application is required by the beginning of fiscal
2005. The Company is currently assessing the applicability and potential impact of FIN 46 on certain of its facility operating leases and other contractual relationships. If any of the entities related to these arrangements require consolidation
under the provisions of FIN 46, the impact would be material to Broders financial position. For the Companys interest in an entity that is subject to this Interpretation and that is created after December 31, 2003, the Company shall
apply this Interpretation to that entity immediately. For the Companys interest in an entity that is subject to this Interpretation and was created prior to December 31, 2003, the Company shall apply this Interpretation in



7



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fiscal 2005. Based on the Companys preliminary assessment of FIN 46, it is reasonably possible that once the Interpretation is effective in fiscal 2005
for entities created prior to December 31, 2003, the Company will be required to consolidate certain real estate and operating lease interests.



2. Shareholders Equity



On September 22, 2003, the Company issued new equity to Bain Capital and related investors with proceeds aggregating $76.0 million, less related fees and
expenses of approximately $0.3 million. The $76.0 million of new equity was comprised of:



| |  | 25,282,963 shares of Class B common stock with a par value of $0.01 per share. These shares are non-voting, but are otherwise identical to the existing shares of Class A common
stock.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 2,452,012 shares of Class L, Series 3 common stock with a par value of $0.01 per share. These shares are non-voting and have a liquidation preference over the Class A and B common
stock. The liquidation preference per share is calculated as $23.90 plus an amount accumulating from the date of issuance at a rate of 12.5% per annum, and compounding quarterly, on the outstanding accumulated preference. In addition, the Class L,
Series 3 shareholders were also issued warrants for the purchase of 272,445 shares of Class L, Series 3 common stock at an exercise price of $15.75 per share. The Class L, Series 3 warrants expire on September 22, 2013 and were valued at
approximately $1.3 million in the accompanying financial statements.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 2,370,584 shares of Class L, Series 4 common stock with a par value of $0.01 per share. These shares are non-voting and have a liquidation preference over the Class A and B common
stock. The liquidation preference per share is calculated at $16.32 plus an amount accumulating from the date of issuance at a rate of 15.0% per annum, and compounding quarterly, on the outstanding accumulated preference.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Effective May 3, 2000 the Company entered into an agreement and plan of
merger (the Merger Agreement) with BB Merger Corp., a transitory Delaware merger corporation formed by Bain Capital, Inc., resulting in a recapitalization of the company and ensuing change in ownership (the Recapitalization).
Pursuant to the Merger Agreement, on May 3, 2000, BB Merger Corp. was merged into the Company, with the Company being the surviving corporation. In connection with the Recapitalization, the former shareholders of the Company converted a significant
portion of their prior Class A and Class B common stock into a right to receive specified payments, while simultaneously, certain equity investors, including affiliates of Bain Capital, Inc. and executives of the Company acquired an approximate 86%
economic equity stake in the Company. The remaining 14% was owned by former controlling shareholders of the Company.



In connection with the Recapitalization, the Company entered into a non-contingent deferred compensation agreement with an officer of the Company for $1.0
million payable in seven years. During the quarter ended June 30, 2004, the deferred compensation agreement was settled for its full value when the officer repaid a note payable to the Company. These transactions had no net impact on cash flows of
the Company, but resulted in the recognition of an approximate $0.2 million loss on the early retirement of the deferred compensation obligation.



3. Acquisitions



In accordance with SFAS No. 141 Business Combinations, the purchase price paid in each acquisition has been allocated to the assets acquired
and liabilities assumed. In June 2003, the Company acquired substantially all of the assets of TSM, a regional sportswear distributor with one location in Louisville, Kentucky, and in September 2003, the Company acquired all of the outstanding
capital stock of Alpha, a national sportswear and accessories distributor with five locations located throughout the United States. The primary benefit inherent in the TSM acquisition was in the form of operating synergies expected to result from
the elimination of duplicative infrastructure, job functions, and selling, general and administrative costs. Accordingly, the excess purchase price paid for TSM over the fair value of tangible assets acquired and liabilities assumed was allocated to
goodwill. The acquisition of Alpha has brought the Company greater scale, broader product offerings, extended national presence and differentiated customer selling support. The purchase price allocation for the acquisition of Alpha was performed
with the assistance of an independent appraisal firm to determine valuations of certain tangible and identifiable intangible assets. The Alpha purchase price allocation is preliminary with respect to certain assets and accrued liabilities.



8



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##### Table of Contents

The following table represents the final allocation of the purchase price to assets acquired and
liabilities assumed for the acquisitions of TSM and Alpha:



|                                       |  |                |        |   |       |   |         |  
|-------------------------------------- |  | -------------- | ------ | - | ----- | - | ------- | -
|                                       |  | TSM            |        |   | Alpha |  
|                                       |  | (in thousands) |       
|Accounts receivable                    |  | $              | 768    |   |       | $ | 49,313  |  
|Inventory                              |  |                | 1,961  |   |       |   | 53,508  |  
|Other assets                           |  |                | 138    |   |       |   | 4,592   |  
|Fixed assets                           |  |                | 48     |   |       |   | 7,611   |  
|Customer relationships                 |  |                |       |   |       |   | 47,600  |  
|Trademarks and trade names             |  |                |       |   |       |   | 40,100  |  
|Other intangible assets                |  |                |       |   |       |   | 733     |  
|Goodwill                               |  |                | 2,378  |   |       |   | 126,976 |  
|Accounts payable and other liabilities |  |                | (2,695 | ) |       |   | (42,032 | )
|Long-term debt                         |  |                |       |   |       |   | (150    | )
|Deferred taxes, net                    |  |                |       |   |       |   | (40,462 | )
|                                       |  |                |        |   |       |   |         |  
|Purchase Price                         |  | $              | 2,598  |   |       | $ | 247,789 |  
|                                       |  |                |        |   |       |   |         |  



The unaudited pro
forma financial information presented below gives effect to the TSM and Alpha acquisitions as if they occurred as of the beginning of fiscal 2003. The information presented below is for illustrative purposes only and is not indicative of results
which would have been achieved or may be achieved in the future.



|                       |  |                                 |         |   |                               |   |         |  
|---------------------- |  | ------------------------------- | ------- | - | ----------------------------- | - | ------- | -
|                       |  | Three MonthsEnded June 30, 2003 |         |   | Six MonthsEnded June 30, 2003 |  
|                       |  | (in thousands)                  |         |   | (in thousands)                |  
|Net Sales              |  | $                               | 219,144 |   |                               | $ | 385,559 |  
|Gross Profit           |  |                                 | 37,201  |   |                               |   | 65,145  |  
|Income from Operations |  |                                 | 8,712   |   |                               |   | 7,916   |  
|Net Loss               |  |                                 | (890    | ) |                               |   | (5,415  | )



The results of
operations for each acquisition have been included in the consolidated financial statements since the date of acquisition.



4. Comprehensive Loss



|                                                            |  |                    |     |               |                  |        |              |  |   |              |   |  |   |        |  
|----------------------------------------------------------- |  | ------------------ | --- | ------------- | ---------------- | ------ | ------------ |  | - | ------------ | - |  | - | ------ | -
|                                                            |  | Three Months ended |     |               | Six Months Ended |       
|                                                            |  | June 30, 2004      |     | June 30, 2003 |                  |        | June 30,2004 |  |   | June 30,2003 |  
|                                                            |  | (in thousands)     |    
|Net income (loss)                                           |  | $                  | 897 |               | $                | (1,537 | )            |  | $ | (4,061       | ) |  | $ | (4,047 | )
|Amortization of FAS 133 transition adjustment, net of taxes |  |                    | 34  |               |                  | 48     |              |  |   | 67           |   |  |   | 96     |  
|                                                            |  |                    |     |               |                  |        |              |  |   |              |   |  |   |        |  
|Comprehensive income (loss)                                 |  | $                  | 931 |               | $                | (1,489 | )            |  | $ | (3,994       | ) |  | $ | (3,951 | )
|                                                            |  |                    |     |               |                  |        |              |  |   |              |   |  |   |        |  



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5. Long-Term Debt and Capital Lease Obligations



Long-term debt and capital lease obligations consisted of the following:



|                                                                              |  |                |         |                  |   |        
|----------------------------------------------------------------------------- |  | -------------- | ------- | ---------------- | - | -------
|                                                                              |  | June 30,2004   |         | December 31,2003
|                                                                              |  | (in thousands)
|Revolving credit facility                                                     |  | $              | 100,900 |                  | $ | 85,900 
|Senior notes                                                                  |  |                | 175,000 |                  |   | 175,000
|Kays seller note                                                             |  |                |        |                  |   | 150    
|Capital lease obligations                                                     |  |                | 1,631   |                  |   | 2,317  
|                                                                              |  |                |         |                  |   |        
|                                                                              |  |                | 277,531 |                  |   | 263,367
|Less: current portion                                                         |  |                | 1,045   |                  |   | 1,424  
|                                                                              |  |                |         |                  |   |        
|Total long-term debt and capital lease obligations, excluding current portion |  | $              | 276,486 |                  | $ | 261,943
|                                                                              |  |                |         |                  |   |        



Revolving Credit
Facility



In connection with the Alpha acquisition, the
Company retired its existing revolving credit facility and entered into a new revolving credit facility. The new revolving credit facility is available until September 2008 and provides for aggregate borrowings of up to $175.0 million, subject to
borrowing base limitations. The new revolving credit facility is secured by first priority pledges of all the equity interests owned by the Company in its domestic subsidiaries and 66% of all equity interests in any future foreign subsidiaries. The
new revolving credit facility is also secured by first priority interests in, and mortgages on, substantially all tangible and intangible assets of the Company and each of its direct and indirect domestic subsidiaries. Availability under the new
revolving credit facility is based on a borrowing base calculated using advance rates applied to eligible accounts receivable and eligible inventory. The revolving credit facility contains both affirmative and negative covenants which, among other
things, may require the Company to meet certain financial tests (including a minimum interest coverage ratio and minimum levels of EBITDA, as defined in the credit facility), and places limits upon capital expenditures, disposals of assets, mergers
and acquisitions, further indebtedness, transactions with affiliates and other customary restrictions. The occurrence of certain of these events may accelerate required repayment. As of June 30, 2004, the Company was in compliance with all
covenants.



The revolver agreement provides for interest based
upon a fixed spread above the banks prime lending rate, or other rate options which are periodically fixed at a spread over the banks LIBOR lending rate. In addition, an unused credit facility fee ranging from 0.375% to 0.5% is charged
quarterly on the average daily unused portion of the facility. The unused credit facility fees amounted to approximately $0.1 million and $0.2 million for the three and six months ended June 30, 2004, respectively. The effective interest rates at
June 30, 2004 and December 31, 2003 were 5.3% and 5.7%, respectively, and the weighted average interest rate on the new revolving credit facility for the six months ended June 30, 2004 was 3.8%. As of June 30, 2004, outstanding borrowings on the
revolving credit facility were $100.9 million, which left approximately $36.1 million of available borrowing base capacity.



Deferred financing fees related to the revolving credit facility of $7.1 million are being amortized on a straight-line basis over the life of the
facility.



The revolving credit facility also contains a
provision for up to $25.0 million of letters of credit, subject to borrowing base availability and total amounts outstanding under the revolving credit agreement of $175.0 million. As of June 30, 2004 and December 31, 2003, the Company had
outstanding letters of credit related to commitments for the purchase of inventory of approximately $9.2 million and $6.1 million, respectively.



Senior Subordinated Notes



On June 27, 2003, the Company completed the conversion of all outstanding Senior Subordinated Notes (approximately $13.2 million carrying value at time of
conversion) into 966,791 shares of Class L, Series 2 (Class L-2) and recognized a loss of approximately $1.9 million reflecting the difference between the carrying value of the notes and the estimated fair value of the Class L-2 shares.
The Class L - 2 shares are non-voting and provide for a liquidation preference over Class A shares with respect to any distribution by the Company to holders of its capital stock equal to the conversion value of the shares plus an amount that
accrues at an annual rate of 15% compounded on a quarterly basis. Class L-2 shares have a par value $0.01 per share and are identical to Class A common shares in all other respects.



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Subordinated DebtSelling Shareholder



On September 22, 2003, in connection with the Alpha acquisition, the Company
repaid all of the outstanding subordinated debtselling shareholder (approximately $6.1 million carrying value at time of repayment) for $4.5 million, recognizing a gain of approximately $1.6 million.



Senior Notes



On September 22, 2003, in connection with the Alpha acquisition, the Company
completed a private offering of $175.0 million in aggregate principal amount of its 111/4% Senior Notes due October 15, 2010. The proceeds of the private offering were used to finance the Alpha
acquisition, repay existing indebtedness of the Company and Alpha, and to pay related fees and expenses. The Senior Notes are guaranteed on a senior unsecured basis by all existing and future material domestic subsidiaries, and pay interest
semi-annually in arrears on April 15 and October 15 of each year. The indenture governing the Senior Notes contains customary affirmative and negative covenants which, among other things, limit the Companys ability to incur additional
indebtedness, pay dividends, merge or consolidate, or otherwise sell or dispose of substantially all of the Companys assets. The occurrence of certain of these events may accelerate required repayment of the notes.



Interest rate swaps



As a condition of prior revolving credit facility, the Company was required
to enter into interest rate protection agreements (swaps) which survived to the new revolving credit facility. The Company does not use derivatives for speculative purposes.



The Company had outstanding interest rate swap agreements with a commercial
bank as follows:



|                      |  |                  |        |                  |   |       
|--------------------- |  | ---------------- | ------ | ---------------- | - | ------
|                      |  | Notional Amounts
|                      |  | June 30,2004     |        | December 31,2003
|                      |  | (in thousands)  
|MaturityMay 2005     |  | $                | 20,000 |                  | $ | 20,000
|MaturityOctober 2008 |  |                  | 10,000 |                  |   | 10,000
|                      |  |                  |        |                  |   |       
|                      |  | $                | 30,000 |                  | $ | 30,000
|                      |  |                  |        |                  |   |       



The Company is exposed
to credit loss in the event of nonperformance by the counter party. The Company does not anticipate nonperformance to be likely.



The fair value of the Companys interest rate protection agreements approximated $(2.0) million at December 31, 2000. Upon adoption of SFAS No. 133
on December 31, 2000, the Company reduced other comprehensive income by this amount, less the tax effect, as a result of the transition. Immediately following adoption, the Company elected to not apply hedge accounting for these swap agreements. The
fair value of these interest rate swaps decreased to approximately $(2.1) million and $(3.2) million at June 30, 2004 and December 31, 2003, respectively. These decreases in value have been recognized in earnings. In addition, approximately $34,000
and $48,000, net of tax, of the initial transition adjustment was reclassified to earnings during the six months ended June 30, 2004 and 2003, respectively. The Company expects to reclassify approximately $0.1 million, net of tax, during the next 12
months. The swaps were classified as other long-term liabilities at June 30, 2004 and December 31, 2003 based on the expected timing of the cash flows related to the swaps.



Redeemable Securities



Certain key executives of the Company hold common shares that may be put to the Company at their then fair market value if the executive terminates for
any reason other than for cause or without good reason. As of December 31, 2003, the recorded value of the redeemable securities of $1.4 million was net of the related executive note receivables outstanding of approximately $0.7 million and was
reported as mezzanine debt on the consolidated balance sheet. As of December 31, 2002 the common shares were carried at their fair market value as of the original grant date, as redemption was considered to be uncertain for the majority of
executives holding shares in the Company. Effective September 22, 2003, one executive experienced a triggering event which resulted in the exercise of the put feature of the related common shares. As a result, the common shares owned by that
executive were re-valued as of September 27, 2003 and the related accretion was recorded resulting in an adjustment to additional paid-in-capital of $55,000 during the year ended December 31, 2003. Redemption was considered to be uncertain for all
other executives as of December 31, 2003 based on the fact that a triggering event has not occurred leading to an executives termination for any other reason than for cause or without good reason.



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During the three months ended June 30, 2004, Bain Capital, Inc. redeemed this executives shares at
fair market value for approximately $0.3 million, which resulted in an increase to additional paid-in-capital. In addition, Bain Capital sold shares of its common stock to certain executives at their fair market value. These shares may be put to the
Company at their fair market value if the executive terminates for any reason other than for cause or without good reason and are recorded as other long-term liabilities on the consolidated balance sheet at June 30, 2004 in accordance with Statement
of Financial Accounting Standards (SFAS) No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. Redemption was considered to be uncertain for all executives as of June 30,
2004 based on the fact that a triggering event has not occurred leading to an executives termination for any other reason than for cause or without good reason.



These shares, net of the related note receivable, have been recorded on the consolidated balance sheets at each of the
following dates:



|                  |  |                                      |  |                         |     |                          |   |                      |  |        
|----------------- |  | ------------------------------------ |  | ----------------------- | --- | ------------------------ | - | -------------------- |  | -------
|                  |  | Number ofShares                      |  | CommonStock atPar Value |     | AdditionalPaid-inCapital |   | LiquidatedPreference
|                  |  | (in thousands, except share amounts)
|June 30, 2004     |  |                                      |  |                         |     |                          |   |                      |  |        
|Class A           |  | 515,859                              |  | $                       | 5.2 |                          | $ | 95                   |  |       
|Class B           |  | 214,573                              |  |                         | 2.1 |                          |   | 40                   |  |       
|Class L, Series 1 |  | 36,363                               |  |                         | 0.4 |                          |   | 572                  |  | 954.5  
|Class L, Series 2 |  | 35,156                               |  |                         | 0.4 |                          |   | 57                   |  | 641.6  
|Class L, Series 3 |  | 20,810                               |  |                         | 0.2 |                          |   | 328                  |  | 546.3  
|Class L, Series 4 |  | 20,119                               |  |                         | 0.2 |                          |   | 275                  |  | 367.2  
|December 31, 2003 |  |                                      |  |                         |     |                          |   |                      |  |        
|Class A           |  | 670,738                              |  | $                       | 6.7 |                          | $ | 124                  |  |       
|Class L, Series 1 |  | 41,818                               |  |                         | 0.4 |                          |   | 658                  |  | 1,032.1
|Class L, Series 2 |  | 40,429                               |  |                         | 0.4 |                          |   | 636                  |  | 685.3  



6. Related Party Transactions



In May 2000, the Company entered into an Advisory
Services Agreement with Bain Capital, Inc. pursuant to the Merger Agreement and Recapitalization of the Company. The Advisory Services Agreement required the Company to pay a quarterly advisory fee of approximately $0.2 million for a ten year
period. In an event of a change of control or Initial Public Offering prior to the ten year period, Bain Capital would have received a lump sum payment equivalent to three years of advisory fees. The agreement also required the Company to pay
investment banking fees in the amount of 1% of certain prescribed transactions, part of which could have been used to offset the quarterly advisory fee otherwise due. Advisory service payments were $0.2 million and $0.4 million during the three and
six months ended June 30, 2003, respectively.



In connection
with the acquisition of Alpha in September 2003, the Advisory Services Agreement was cancelled and replaced by a discretionary, contingency-based agreement, subject to certain limitations set forth therein. Under the amended and restated Advisory
Services Agreement, for the first two full fiscal years following the acquisition and related equity investment by Bain Capital, Bain Capital may be paid a management fee for strategic, financial and other advisory services up to an annual maximum
of $1.5 million at the discretion of the Companys board of directors. In the event Bain Capital receives a fee for fiscal 2004, it will also receive a pro rata portion of such fee for the period from the closing of the acquisition through
December 31, 2003. For each full fiscal year beginning in fiscal 2006, Bain Capital may be paid a fee up to an annual maximum of $3.0 million at the discretion of the Companys board of directors. Before any such management fees may be paid,
EBITDA, as defined in the amended and restated advisory agreement, after giving effect to payment of the management fee, must be greater than $52.0 million in order for Bain Capital to earn a fee. For purposes of calculating whether the payment of a
management fee is permitted in fiscal 2004, EBITDA in fiscal 2004 will be adjusted for certain cost savings set forth in the agreement that are expected to be achieved in the next six months, without duplication of such cost savings actually
realized through fiscal year 2004, as reviewed and approved by the Companys board of directors in their reasonable discretion. Except as described in this paragraph, the new Advisory Services Agreement is substantially identical to the prior
advisory services agreement. Management believes that the terms of such advisory agreement with Bain Capital are no less favorable than those that could have been obtained pursuant to a similar agreement with an unrelated third party. During the
three months ended June 30, 2004, the Company recorded a management fee accrual of $0.6 million.



In connection with the Recapitalization, the Company loaned an officer $1.0 million as a note receivable with interest at the annual short-term federal
rate compounded annually. The note is due May 3, 2007. As security, the officer has pledged shares in the Company. At December 31, 2003, $0.7 million of the employee note and related interest were netted against the related redeemable securities
that were included as mezzanine debt on the consolidated balance sheet. The remaining $0.3 million and related interest was included in the shareholders equity section of the consolidated balance sheet. As disclosed in Note 2, the Company also
entered into a non-contingent deferred compensation agreement with the same officer for $1.0 million also payable in 2007. The deferred



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compensation agreement was settled for its full value when the officer repaid a $0.7 million note payable to the Company during the three months ended June
30, 2004. The transactions had no net impact on cash flows of the Company, but resulted in the recognition of an approximate $0.2 million loss on the early retirement of the deferred compensation obligation. At June 30, 2004, approximately $0.4
million of the note receivable including interest was outstanding and was included in other long-term liabilities on the consolidated balance sheet.



7. Commitments and Contingencies



Self-Insured Health Plan



The Company maintains a self-insured health plan for all of its Broder division employees. The Company has purchased stop loss insurance to supplement the
health plan, which will reimburse the Company for individual claims in excess of $0.1 million annually or aggregate claims exceeding approximately $2.5 million. At June 30, 2004 and December 31, 2003, approximately $0.4 and $0.5 million were
included in accrued liabilities, respectively.



Litigation



In April 2004, a contracted supplier filed a claim against the Company
for breach of contract, fraud and negligent misrepresentation. On July 7, 2004 the Company entered into a settlement with the plaintiffs resulting in no material impact on the Companys financial condition or results of operations. In
connection with the settlement agreement the Company agreed to a supply agreement providing for a total purchase of $15.0 million of product purchase commitments with a minimum of $5.0 million of product purchases per year through 2007. Management
believes this commitment is within the normal needs of the business. The Company is also a party to various other lawsuits arising out of the normal conduct of its business, none of which individually or in the aggregate, are expected to have a
material adverse effect on the Companys results of operations or financial position.



Employment Agreements



The Company has entered into employment agreements with certain employees, which provide that the employee will not compete in the wholesale distribution of imprintable sportswear and accessories business for a specified period after their
respective termination dates. The employment agreements also define employment terms including salary, bonus and benefits to be provided to the respective employees.



Advisory Agreement



In connection with the acquisition of Alpha, the Company entered into an amended and restated Advisory Services Agreement with Bain Capital in September
2003. See Note 6.



8. Segment Information



In accordance with SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information, the Companys principal operating segments are grouped into two business units: the Broder division, and with the September 22, 2003 acquisition of Alpha, the Alpha division. Prior to the acquisition of
Alpha, the Company operated one segment. Operating segments are defined as components of the business for which separate information is available and is evaluated regularly by the chief operating decision makers in deciding how to allocate resources
and in assessing performance. While management expects these segments to exhibit similar long-term financial performance because they have similar economic characteristics, the nature of each divisions products is similar, the type of customer
is similar and the method used to distribute their products is similar, the Company has determined that it had two operating segments as of June 30, 2004 and December 31, 2003 because a comprehensive integration of the two businesses had not
occurred. Until such time as a comprehensive integration of the two businesses has occurred, the Company intends to separately identify and manage certain key elements of each division. The following table presents information used by the
Companys chief operating decision makers in deciding how to allocate resources and in assessing performance.



|                                    |  |                                  |         |                                |   |              |  |        |         |       |   |              |  |   |         |  |   |        
|----------------------------------- |  | -------------------------------- | ------- | ------------------------------ | - | ------------ |  | ------ | ------- | ----- | - | ------------ |  | - | ------- |  | - | -------
|                                    |  | Three Months Ended June 30, 2004 |         | Six Months Ended June 30, 2004
|                                    |  | Broder                           |         | Alpha                          |   | Consolidated |  | Broder |         | Alpha |   | Consolidated
|                                    |  | (in thousands)                  
|Statement of Operations Information |  |                                  |         |                                |   |              |  |        |         |       |   |              |  |   |         |  |   |        
|Net sales                           |  | $                                | 104,070 |                                | $ | 123,228      |  | $      | 227,298 |       | $ | 183,841      |  | $ | 220,217 |  | $ | 404,058
|Cost of sales                       |  |                                  | 86,201  |                                |   | 100,278      |  |        | 186,479 |       |   | 154,312      |  |   | 177,836 |  |   | 332,148
|                                    |  |                                  |         |                                |   |              |  |        |         |       |   |              |  |   |         |  |   |        
|Gross profit                        |  | $                                | 17,869  |                                | $ | 22,950       |  | $      | 40,819  |       | $ | 29,529       |  | $ | 42,381  |  | $ | 71,910 
|                                    |  |                                  |         |                                |   |              |  |        |         |       |   |              |  |   |         |  |   |        



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|                                                        |  |               |        |       |   |              |  |   |        
|------------------------------------------------------- |  | ------------- | ------ | ----- | - | ------------ |  | - | -------
|                                                        |  | June 30, 2004
|                                                        |  | Broder        |        | Alpha |   | Consolidated
|Balance Sheet Information                               |  |               |        |       |   |              |  |   |        
|Accounts receivable, net                                |  | $             | 38,002 |       | $ | 45,145       |  | $ | 83,147 
|Inventory                                               |  |               | 74,878 |       |   | 69,807       |  |   | 144,685
|Goodwill, intangible assets and deferred financing fees |  |               | 26,972 |       |   | 205,325      |  |   | 232,297
|Accounts payable                                        |  |               | 47,405 |       |   | 45,952       |  |   | 93,357 



9. Restructuring Charges



Following the September 2003 acquisition of Alpha, the
Company changed its inventory replenishment strategy and began the initiative to consolidate corporate headquarters of the combined Company. As a result, the Company effected a restructuring and asset impairment plan designed to reduce its cost
structure by closing two distribution centers, disposing of the related fixed assets and reducing its workforce.



During the fourth quarter of 2003, the Company recorded a $9.1 million restructuring charge in accordance with SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, on the Companys Broder division which was included in total operating expense for the year ended December 31, 2003. This charge consisted of the fair value of the future lease obligations as
of the cease-use date, net of expected sub-lease rentals, severance related payments for distribution center and corporate office staff reductions and fixed asset impairment charges related to the disposal of distribution center fixed assets. The
distribution centers were closed during the fourth quarter of 2003. The Company expects to incur a total of approximately $10.9 million in connection with the 2003 restructuring plan, consisting of approximately $7.0 million in distribution center
closure costs, $0.9 million in non-cash fixed asset impairment charges and approximately $3.0 million in cash severance and related benefits. The majority of severance payments related to corporate employees are expected to be paid during the third
quarter of 2004 due to planned corporate employee termination dates. The future lease obligation is expected to be paid over the remaining lease term, which expires in March 2014.



During the three months ended June 30, 2004, the Company recorded a non-cash fixed asset impairment charge of approximately
$0.8 million for the disposal of computer software that the Company had determined it would not continue to use as a result of the completion of the second of four stages of its information systems integration plan related to the merger of Broder
and Alpha. The second stage of the information systems integration plan occurred during the three months ended June 30, 2004 and combined the purchasing, forecasting, inventory control and inventory costing systems onto a single platform. The
remaining $0.8 million and $1.5 million recorded during the three and six months ended June 30, 2004, respectively, represents severance and related benefits incurred in connection with the 2003 restructuring plan.



The Broder divisions restructuring activity is summarized as follows:



|                                  |  |                            |       |                     |   |              |  |   |                                  |   |  |                        |      |   |  |   |      
|--------------------------------- |  | -------------------------- | ----- | ------------------- | - | ------------ |  | - | -------------------------------- | - |  | ---------------------- | ---- | - |  | - | -----
|                                  |  | Balance atDecember 31,2003 |       | RestructuringCharge |   | CashPayments |  |   | Non-CashItemsExpensedImmediately |   |  | Balance atJune 30,2004
|                                  |  | (in thousands)            
|Distribution center closure costs |  |                            |       |                     |   |              |  |   |                                  |   |  |                        |      |   |  |   |      
|Lease termination costs           |  | $                          | 7,150 |                     | $ |             |  | $ | (241                             | ) |  | $                      |     |   |  | $ | 6,909
|Severance and related benefits    |  |                            | 180   |                     |   |             |  |   | (157                             | ) |  |                        |     |   |  |   | 23   
|Non-cash asset write-offs         |  |                            |      |                     |   | 812          |  |   |                                 |   |  |                        | (812 | ) |  |   |     
|Corporate workforce reduction     |  |                            |       |                     |   |              |  |   |                                  |   |  |                        |      |   |  |   |      
|Severance and related benefits    |  |                            | 918   |                     |   | 1,462        |  |   | (597                             | ) |  |                        |     |   |  |   | 1,783
|                                  |  |                            |       |                     |   |              |  |   |                                  |   |  |                        |      |   |  |   |      
|                                  |  | $                          | 8,248 |                     | $ | 2,274        |  | $ | (995                             | ) |  | $                      | (812 | ) |  | $ | 8,715
|                                  |  |                            |       |                     |   |              |  |   |                                  |   |  |                        |      |   |  |   |      



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|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



Unless the context otherwise requires, all references to Broder  the Company, we,
us, and our include Broder Bros., Co. and its subsidiaries. References in this report to TSM refer to the acquisition of T-Shirts & More, Inc. that was completed in June 2003. References in this report to
Alpha refer to the operations of Alpha Shirt Holdings, Inc. and its subsidiaries.



Broder operates on a 52- or 53-week year basis with the fiscal year ending on the last Saturday of December. For convenience, the financial information included herein has been presented as ending on the last day of
the nearest calendar month. Future results could differ materially from the discussion below for many reasons, including the factors described in Risk Factors and elsewhere in the Registration Statement on Form S-4 filed with the
Securities and Exchange Commission (SEC) on April 16, 2004 and declared effective on April 20, 2004. In addition, see Forward-Looking Statements included elsewhere herein.



General



On September 22, 2003, simultaneously with the initial sale of the outstanding notes, Broder acquired all of the outstanding
capital stock of Alpha, pursuant to a stock purchase agreement entered into on July 12, 2003. Immediately after consummation of the acquisition, Alpha and its subsidiaries were merged with and into Broder, except for ASHI, Inc., which became a
direct, wholly owned subsidiary of Broder. The total cash consideration in the acquisition was $247.8 million. The aggregate cash costs of the acquisition, together with the funds necessary to refinance certain existing indebtedness of Broder and
pay the related fees and expenses, were financed by the following transactions (the Transactions):



| |  | $76.0 million of new equity contributed to Broder by Bain Capital, management and other investors;
| | - | --------------------------------------------------------------------------------------------------



| |  | borrowings by Broder of $92.0 million under a new $175.0 million revolving credit facility; and
| | - | -----------------------------------------------------------------------------------------------



| |  | proceeds from the issuance and sale of the outstanding Senior Notes.
| | - | --------------------------------------------------------------------



Bain Capital, management and the other investors in Broder also rolled over 100% of their existing equity investment of $30.6 million at
September 22, 2003.



Immediately prior to the acquisition of
Alpha, Broder operated through 14 distribution facilities in 10 states nationwide with headquarters in Plymouth, Michigan. Prior to the acquisition of Alpha, Broder offered a variety of items from approximately 30 suppliers to over 50,000 customers.
Broders 2003 product offerings of approximately 11,800 SKUs included a range of basic and premium brands.



Immediately prior to the acquisition, Alpha operated through 5 distribution facilities strategically located throughout the United States with
headquarters in Philadelphia, Pennsylvania. Prior to the acquisition, Alpha offered products from approximately 28 suppliers to over 45,000 customers. Alphas 2003 product offerings of approximately 16,500 SKUs included a range of basic and
premium brands.



Following the acquisition of Alpha, we
enhanced our position as a leading distributor in the U.S. within the estimated $8 billion imprintable sportswear and accessories industry, supplying blank T-shirts, sweatshirts, polo shirts, woven shirts, jackets, caps and other imprintable
sportswear in an industry with more than 50 different suppliers and over 100,000 customers. The imprintable sportswear and accessories market is characterized by a highly fragmented customer base comprised primarily of regional and local decorators
who, because of their size, do not generally purchase directly from suppliers. We provide the resources to handle small-order size, while offering broad selection and rapid delivery. Our primary customers are decorators who decorate the blank
products we supply and then in turn sell to a wide variety of end-use consumers. Through our extensive distribution network, we have the ability to reach over 80% of the continental U.S. population with one business day shipping and over 98% of the
continental U.S. population with two business days shipping.



Following the acquisition, we continue to market our products under two separate brands in the marketplace: Broder and Alpha. During the fourth quarter of 2003, the Broder division successfully closed two
distribution centers and currently operates through 11 facilities in 9 states nationwide. Leveraging the merchandising, sales and marketing expertise of Alpha, the Broder division enhanced its 2004 product offering, with emphasis on improving the
quality, mix and quantity of products offered, the 2004 Broder division product offering consists of approximately 17,500 SKUs. The Alpha division continues to operate through its existing 5 distribution facilities, and continues to offer a broad
selection of basic and premium brands. The corporate headquarters of the combined company were consolidated into the Philadelphia, Pennsylvania location during the fourth quarter of 2003.



Critical Accounting Policies



While all significant accounting policies are important to Broders consolidated financial statements, some of these policies may be viewed as being
critical. Such policies are those that are both most important to the portrayal of Broders financial condition and



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require Broders most difficult, subjective and complex estimates and assumptions that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosure of contingent assets and liabilities. These estimates are based upon Broders historical experience and on various other assumptions that Broder believes to be reasonable under the circumstances. Broders
actual results may differ from these estimates under different assumptions or conditions. Broder believes its most critical accounting policies are as follows:



Revenue Recognition. Revenue is recognized when title and risk of loss is transferred to the customer, which occurs upon shipment of the product
to the customer. Revenue includes selling price of the product and all shipping and handling costs paid by the customer. Revenue is reduced at the time of sale for estimated customer-related incentives.



Accounts Receivable. Broder maintains an allowance for doubtful
accounts for estimated losses resulting from the inability of our customers to make required payments, which is included in bad debt expense. Broder determines the adequacy of this allowance by regularly reviewing our accounts receivable aging and
evaluating individual customer receivables, considering customers financial condition, credit history, historical trends in the overall customer portfolio and current economic conditions. If the financial condition of Broders customers
were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.



Inventories. Broder maintains an allowance for potential losses on the disposal of its discontinued and slow moving inventory. Estimates for the
allowance are based on past and estimated future sales of the product, historical realization of similar discontinued product, and potential return of slow moving and discontinued product back to the mill. Inventories are stated at the lower of cost
or market using the first in, first out method.



Derivative
Financial Instruments. Broder does not use derivatives for speculative purposes. However, Broder has entered into interest rate protection agreements whereby it has contracted to pay a fixed interest rate in exchange for receipt of a variable
rate. Broder has elected not to apply hedge accounting for the currently outstanding interest rate protection agreements. Accordingly, Broder records current interest rate swaps at fair value and records gains and losses on these contracts through
our statement of operations. Broder will evaluate any future interest rate swaps and for those which qualify and for which it chooses to designate as hedges of future cash flows, the effective portion of changes in fair value will be recorded
temporarily in equity, then recognized in earnings along with the related effects of the hedged items.



Goodwill and Intangible Assets. Broder adopted SFAS No. 142, Goodwill and Other Intangible Assets as of January 1, 2002. Under SFAS No.
142, goodwill and intangible assets with indefinite lives are not amortized; rather, they are tested for impairment on at least an annual basis. Accordingly, Broder ceased amortization of all goodwill and performed a goodwill impairment evaluation
upon adoption and at year end using discounted expected future cash flows. In addition, Broder has recorded other definite lived intangible assets (including certain customer relationships, trademarks and trade names, exclusive vendor relationships
and acquired internally developed software). These intangible assets are being amortized over their estimated useful lives using straight line or accelerated methods which approximate the diminution of value of the underlying asset.



New accounting pronouncements



In December 2003, the FASB issued a revision to Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46) which was first issued in January 2003 and requires the consolidation of variable interest entities, as defined. For Broder, variable interest entities created after
December 31, 2003, require application of the provisions of FIN 46 immediately. For all previously existing entities subject to FIN 46, application is required by the beginning of its fiscal year 2005. Broder is currently assessing the applicability
and potential impact of FIN 46 on certain of its facility operating leases and other contractual relationships. If any of the entities related to these arrangements require consolidation under the provisions of FIN 46, the impact would be material
to Broders financial position. For the Companys interest in an entity that is subject to this Interpretation and that is created after December 31, 2003, we shall apply this Interpretation to that entity immediately. For the
Companys interest in an entity that is subject to this Interpretation and was created prior to December 31, 2003, we shall apply this Interpretation in our fiscal 2005. Based on our preliminary assessment of FIN 46, it is reasonably possible
that once the Interpretation is effective in fiscal 2005 for entities created prior to December 31, 2003, we will be required to consolidate certain real estate and operating lease interests.



Three months ended June 30, 2004 compared to the three months ended June 30, 2003



Net Sales. Net sales increased by approximately
$129.2 million, or 131.7%, from $98.1 million for the three months ended June 30, 2003 to $227.3 million for the three months ended June 30, 2004. Net of $123.2 million contribution to net sales from the acquired Alpha business for the three months
ended June 30, 2004, Broder sales increased $6.0 million for the three months ended June 30, 2004 compared to the three months ended June 30, 2003. This increase resulted from the net impact of: (i) incremental 2004 revenue provided by TSM which was
acquired in June 2003 (estimated impact of $1.9 million); (ii) a 5.9% increase in unit volume (estimated impact of $5.8 million); and (iii) the impact of a 1.8% decrease in average selling price per unit (estimated impact of $1.7 million). A
concentration of growth in the Tee shirt product category resulted in a further mix concentration in this category, although unit volumes in the sport shirt and fleece product categories remained relatively stable. After experiencing unit declines
in the sport



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shirt and fleece product categories during 2002 and 2003, we believe the second quarter stability in these categories is an indicator that the 2004
merchandising strategy to enhance the Broder division product line is succeeding.



Gross Profit. Gross profit increased by $25.7 million, or 170.2%, from $15.1 million for the three months ended June 30, 2003 to $40.8 million for the three months ended June 30, 2004. Net of $23.0 million
contribution to gross profit from the acquired Alpha business, Broder gross profit increased $2.7 million for the three months ended June 30, 2004 compared to the three months ended June 30, 2003. This increase resulted from the net impact of (i)
the contribution to gross profit from TSM which was acquired in June 2003 (estimated impact of $0.2 million); (ii) the increase in unit volume (estimated impact of $0.8 million); and (iii) the net impact of lower cost per unit and a more favorable
contribution from private label products.



Gross margin
increased from 15.4% for the three months ended June 30, 2003 to 18.0% for the three months ended June 30, 2004. Net of the impact on gross margin resulting from the inclusion of Alpha in the three months ended June 30, 2004, gross margin increased
from 15.4% to 17.2%. This increase is primarily the result of lower cost of goods sold in all product categories, and a favorable mix shift within the sport shirt category.



Warehousing, Selling and Administrative Expenses. Warehousing, selling and administrative expenses increased $18.3
million, from $12.5 million for the three months ended June 30, 2003 to $30.8 million for the three months ended June 30, 2004. Approximately $3.6 million of the increase represents increased depreciation and amortization primarily related to assets
acquired in the acquisition of Alpha. The inclusion of Alpha operating expenses, excluding depreciation and amortization, accounts for approximately $12.7 million of the increase. The remaining net increase is primarily the result of increased
general and administrative costs of approximately $3.6 million associated with public company reporting obligations, higher distribution labor due to higher volume and recording a $0.6 million management fee accrual during the second quarter of
2004, partially offset by approximately $1.1 million in distribution labor, occupancy and other operating expense savings from the closure of the Wadesboro, Fullerton and Cleveland distribution centers during 2003 and approximately $0.5 million in
corporate office consolidation savings resulting from the 2003 restructuring plan.



Restructuring Charges. As more fully described in note 9 to the consolidated financial statements, the Company recorded a restructuring charge of $9.1 million during 2003. Following the acquisition of Alpha in
September 2003, the Company changed its inventory replenishment strategy of the combined company and performed a detailed review of the Companys combined operations in order to identify areas of overlap and potential cost savings. As a result,
the Company effected a restructuring plan designed to reduce its cost structure by closing certain distribution centers. During the fourth quarter of 2003, the Broder distribution center in Fullerton, CA was closed, as was the central hub facility
in Wadesboro, NC. In addition, in connection with the acquisition of Alpha, the Company effected a restructuring plan to consolidate its corporate offices into Alphas Philadelphia, PA location and reduce its administrative workforce to
eliminate duplicative functions. As a result of these 2003 restructuring plans, the Company recorded a charge of $9.1 million during 2003, and also as a result of these 2003 plans, the Company recorded additional charges of $0.7 million and $1.6
million during the three months ended March 31, 2004 and June 30, 2004, respectively. These charges primarily related to additional severance in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities and the non-cash write-off of assets disposed in connection with the integration. We expect to record an additional charge of approximately $0.5 million to $1.0 million during the remainder of 2004.



In addition, also as a result of the acquisition of Alpha, the Company has
plans to close additional distribution centers, one of which closed in July 2004, and another to be closed in 2005. The Company estimates costs related to lease terminations, severance and inventory reduction will result in additional future
restructuring charges of approximately $0.5 million to $1.0 million.



Income from Operations. As a result of the factors described above, income from operations increased by approximately $5.8 million, from $2.6 million for the three months ended June 30, 2003 to $8.4 million for the three months ended
June 30, 2004.



Interest and Other Expense. Interest
expense increased by $4.9 million from $2.3 million for the three months ended June 30, 2003 to approximately $7.2 million the three months ended June 30, 2004. The increase is due primarily to increased levels of indebtedness outstanding after the
Transactions, including the $175.0 million of 111/4% Senior Notes outstanding during the three months ended June
30, 2004 (impact of $4.9 million, excluding the impact of amortization of capitalized financing costs), and the amortization of capitalized financing costs incurred in connection with the Transactions. Interest costs were also impacted by the net
effect of interest on Subordinated Notes which were converted into common stock at the end of June 2003, and higher revolving debt levels necessary to support the incremental acquired Alpha business during the three months ended June 30, 2004. Other
expense for the three months ended June 30, 2003 also includes a $1.9 million loss on the conversion of the previously mentioned Subordinated Notes. Other income for the three months ended June 30, 2004 also includes the effect of a favorable change
in the fair value of interest rate swaps (impact of $1.0 million). As a result of the September 22, 2003 Transactions, we have significantly higher levels of outstanding indebtedness, and accordingly expect to report significantly higher levels of
interest expense in the future.



Income Taxes. The
income tax provision for the three months ended June 30, 2003 was less than $0.1 million as compared to a tax provision of $0.8 million for the three months ended June 30, 2004. The difference between the U.S. federal statutory rate of 34% and the
effective provision or benefit rate relates primarily to the federal benefit of deductible state and local taxes.



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Net Income. As a result of the factors described above, net income increased by $2.4 million, or
160.0%, from a net loss of $1.5 million for the three months ended June 30, 2003 to net income of $0.9 million for the three months ended June 30, 2004.



Six months ended June 30, 2004 compared to the six months ended June 30, 2003



Net Sales. Net sales increased by approximately $230.0 million, or 132.2%, from $174.0 million for the six months
ended June 30, 2003 to $404.0 million for the six months ended June 30, 2004. Net of $220.2 million contribution to net sales from the acquired Alpha business for the six months ended June 30, 2004, Broder sales increased $9.8 million for the six
months ended June 30, 2004 compared to the six months ended June 30, 2003. This increase resulted from the net impact of: (i) incremental 2004 revenue provided by TSM which was acquired in June 2003 (estimated impact of $4.2 million); (ii) a 9.5%
increase in unit volume (estimated impact of $16.5 million) and (iii) the impact of an approximate 6.0% decrease in average selling price and product mix shift (estimated impact of $10.9 million). Within the six month period ended June 30, 2004, the
trend of declining average selling prices began to stabilize in the second quarter.



Gross Profit. Gross profit increased by $44.8 million, or 165.3%, from $27.1 million for the six months ended June 30, 2003 to $71.9 million for the six months ended June 30, 2004. Net of $42.4 million
contribution to gross profit from the acquired Alpha business, Broder gross profit increased $2.4 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003. This increase resulted from the net impact of: (i) the
contribution to gross profit from TSM which was acquired in June 2003 (estimated impact of $0.4 million); (ii) the increase in unit volume (estimated impact of $2.7 million); and (iii) the net impact price and product mix.



Gross margin increased from 15.6% for the six months ended June 30, 2003 to
17.8% for the six months ended June 30, 2004. Net of the impact on gross margin resulting from the inclusion of Alpha in the six months ended June 30, 2004, gross margin increased from 15.6% to 16.1%. This increase is primarily the result of lower
cost of goods sold, net of product mix shifts.



Warehousing,
Selling and Administrative Expenses. Warehousing, selling and administrative expenses increased $35.8 million, or 136.1%, from $26.3 million for the six months ended June 30, 2003 to $62.1 million for the six months ended June 30, 2004.
Approximately $6.9 million of the increase represents increased depreciation and amortization related to assets acquired in the acquisition of Alpha. The inclusion of Alpha operating expenses, excluding depreciation and amortization, accounts for
approximately $25.1 million of the increase. The remaining net increase is primarily the result of increased general and administrative costs of approximately $6.1 million associated with public company reporting obligations, higher distribution
labor due to higher volume and recording a $0.6 million management fee accrual during the second quarter of 2004, partially offset by approximately $2.3 million in distribution labor, occupancy and other operating expense savings from the closure of
the Wadesboro, Fullerton and Cleveland distribution centers during 2003 and approximately $0.7 million in corporate office consolidation savings resulting from the 2003 restructuring plan.



Restructuring Charges. As more fully described in note 9 to the
consolidated financial statements, the Company recorded a restructuring charge of $9.1 million during 2003. Following the acquisition of Alpha in September 2003, the Company changed its inventory replenishment strategy of the combined company and
performed a detailed review of the Companys combined operations in order to identify areas of overlap and potential cost savings. As a result, the Company effected a restructuring plan designed to reduce its cost structure by closing certain
distribution centers. During the fourth quarter of 2003, the Broder distribution center in Fullerton, CA was closed, as was the central hub facility in Wadesboro, NC. In addition, in connection with the acquisition of Alpha, the Company effected a
restructuring plan to consolidate its corporate offices into Alphas Philadelphia, PA location and reduce its administrative workforce to eliminate duplicative functions. As a result of these 2003 restructuring plans, the Company recorded a
charge of $9.1 million during 2003, and also as a result of these 2003 plans, the Company recorded an additional charge of $2.3 million during the six months ended June 30, 2004 for additional severance in accordance with SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities and the non-cash write-off of assets disposed in connection with the integration.



Income from Operations. As a result of the factors described above, income from operations increased by approximately $6.8 million, from $0.8
million for the six months ended June 30, 2003 to $7.6 million for the six months ended June 30, 2004.



Interest and Other Expense. Interest expense increased by $10.0 million from $4.6 million for the six months ended June 30, 2003 to approximately
$14.6 million the six months ended June 30, 2004. The net increase is due primarily to increased levels of indebtedness outstanding after the Transactions, including the $175.0 million of 111/4% Senior Notes outstanding during the three months ended June 30, 2004 (impact of $9.8 million, excluding the impact of amortization of capitalized financing
costs), and the amortization of capitalized financing costs incurred in connection with the Transactions. Interest costs were also impacted by the net effect of interest on Subordinated Notes which were converted into common stock at the end of June
2003, and higher revolving debt levels necessary to support the incremental acquired Alpha business during the six months ended June 30, 2004. Other expense for the six months ended June 30, 2003 also includes a $1.9 million loss on the conversion
of the previously mentioned Subordinated Notes. Other income for the six months ended June 30, 2004 also includes the effect of a favorable change in the fair value of interest rate swaps (impact of $1.1 million). As a result of the September 22,
2003 Transactions, we have significantly higher levels of outstanding indebtedness, and accordingly expect to report significantly higher levels of interest expense in the future.



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Income Taxes. The income tax benefit for the six months ended June 30, 2003 was $1.5 million, as
compared to a tax benefit of $2.4 million for the six months ended June 30, 2004. The difference between the U.S. federal statutory rate of 34% and the effective provision or benefit rate relates primarily to the federal benefit of deductible state
and local taxes.



Net Income/(Loss). As a
result of the factors described above, the $4.1 million net loss for the six months ended June 30, 2004 was flat compared to the six months ended June 30, 2003.



Liquidity and Capital Resources



We rely primarily upon cash flow from operations and borrowings under our revolving credit facility to finance operations, capital expenditures and
fluctuations in debt service requirements. We believe that these funds will provide us with sufficient liquidity and capital resources for us to meet our current and future financial obligations, including our scheduled principal and interest
payments, as well as to provide funds for working capital, capital expenditures and other needs for at least the next twelve months. No assurance can be given, however, that this will be the case. We may require additional debt or equity financing
to meet our working capital requirements.



Revolving Credit
Facility



In connection with the Alpha acquisition, Broder
entered into a new revolving credit facility. The revolving credit facility is available until September 2008 and provides for aggregate borrowings of up to $175.0 million, subject to borrowing base limitations. The revolving credit facility is
secured by first priority pledges of all the equity interests owned by Broder in its domestic subsidiaries and 66% of all equity interests in any future foreign subsidiaries. The revolving credit facility is also secured by first priority interests
in, and mortgages on, substantially all tangible and intangible assets of Broder and each of Broders direct and indirect domestic subsidiaries. Availability under the revolving credit facility is based on a borrowing base calculated using
advance rates applied to eligible accounts receivable and eligible inventory. The revolver agreement provides for interest based upon a fixed spread above the banks prime lending rate, or other rate options which are periodically fixed at a
spread over the banks LIBOR lending rate. In addition, an unused credit facility fee ranging from 0.375% to 0.5% is charged quarterly on the average daily unused portion of the facility. The unused credit facility fees amounted to
approximately $0.1 million during the three months ended June 30, 2004. The revolving credit facility contains both affirmative and negative covenants which, among other things, may require us to meet certain financial tests (including a minimum
interest coverage ratio and minimum levels of EBITDA, each as defined in the credit agreement), and places limits upon capital expenditures, disposals of assets, mergers and acquisitions, future indebtedness, transactions with affiliates and other
customary restrictions. As of June 30, 2004, we were in compliance with all covenants.



As of June 30, 2004, outstanding borrowings on the revolving credit facility were $100.9 million, which left $36.1 million of available borrowing base capacity.



The revolving credit facility also contains provision for up to $25.0 million
of letters of credit, subject to borrowing base availability and total amounts outstanding under the revolving credit agreement of $175.0 million. As of June 30, 2004, we had $9.2 million of outstanding letters of credit related to commitments for
the purchase of inventory.



Senior Notes



On September 22, 2003, we completed a private offering of $175.0 million in
aggregate principal amount of our 111/4% Senior Notes due 2010. The proceeds of the private offering were used to
finance the Alpha acquisition, repay existing indebtedness of Broder and Alpha, and to pay related fees and expenses. The Senior Notes are guaranteed on a senior unsecured basis by all existing and future material domestic subsidiaries, and pay
interest semi-annually in arrears on April 15 and October 15 of each year. The indenture governing the Senior Notes contains customary affirmative and negative covenants which, among other things, limit our ability to incur additional indebtedness,
pay dividends, merge or consolidate, or otherwise sell or dispose of substantially all of our assets. See Note 5 to the consolidated financial statements for a further description of the Senior Notes.



Six months ended June 30, 2004 compared to the six months ended June 30,
2003



Net cash provided by operating activities was
approximately $10.5 million for the six months ended June 30, 2004 compared to cash provided by operating activities of approximately $8.2 million for the six months ended June 30, 2003. The changes in accounts receivable, accounts payable and other
operating accounts are principally due to the acquisition of Alpha. The change in cash flows from operating activities was due principally to increased depreciation and amortization and changes in deferred taxes and operating accounts primarily due
to the acquisition of Alpha.



Net cash used in investing
activities was $2.4 million for the six months ended June 30, 2004 compared to $3.8 million for the six months ended June 30, 2003. The change in cash flows from investing activities was attributable to increased capital expenditures of $1.2 million
and the acquisition of TSM in June 2003.



Net cash used in
financing activities for the six months ended June 30, 2004 and 2003 was $7.0 million and $5.4 million respectively. The changes were primarily the result of the net borrowings on the revolving credit facility and the change in the book overdraft
position.



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##### Table of Contents

Contractual Cash Obligations



|                                      |  |                        |       |                 |   |             |  |             |      |              |   |       |  |   |      
|------------------------------------- |  | ---------------------- | ----- | --------------- | - | ----------- |  | ----------- | ---- | ------------ | - | ----- |  | - | -----
|                                      |  | Payments Due by Period
|                                      |  | Total                  |       | Less than 1year |   | 1 to 3years |  | 4 to 5years |      | After 5years
|                                      |  | (dollars in millions) 
|Revolving credit facility             |  | $                      | 100.9 |                 | $ |            |  | $           |     |              | $ | 100.9 |  | $ |     
|Senior notes                          |  |                        | 175.0 |                 |   |            |  |             |     |              |   |      |  |   | 175.0
|Operating lease obligations           |  |                        | 49.0  |                 |   | 8.1         |  |             | 19.7 |              |   | 9.1   |  |   | 12.1 
|Capital lease obligations             |  |                        | 1.6   |                 |   | 1.0         |  |             | 0.6  |              |   |      |  |   |     
|Supply agreement(1)                   |  |                        | 34.0  |                 |   | 12.0        |  |             | 22.0 |              |   |      |  |   |     
|                                      |  |                        |       |                 |   |             |  |             |      |              |   |       |  |   |      
|Total contractual cash obligations(2) |  | $                      | 360.5 |                 | $ | 21.1        |  | $           | 42.3 |              | $ | 110.0 |  | $ | 187.1
|                                      |  |                        |       |                 |   |             |  |             |      |              |   |       |  |   |      



|(1) | Broder is party to two separate and exclusive supply agreements. In one supply agreement it has committed to purchase a minimum of $6.0 million of product per year
through 2006. Under this supply agreement, Broder held an exclusivity option through 2003, with the option to extend exclusivity provisions annually in exchange for commitment to purchase an incremental $1.0 million of product each year the
exclusivity option is extended. The exclusivity option for 2004 was exercised, resulting in a 2004 purchase commitment of $7.0 million. Any shortfall in committed purchases for a given year may be carried forward or backward one year, subject to
certain limits. If after carry forward or backward, actual purchases still fall short of committed levels, a penalty of 7.5% of the shortfall will be incurred.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In the other supply agreement Broder has committed to purchase a total of $15.0 million at a minimum of $5.0 million of
product per year through 2007.



|(2) | Interest payments on the revolving credit facility, the senior notes and the seller note represent contractual future obligations not reflected in this table.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



Litigation



In April 2004, a contracted supplier filed a claim against the Company for
breach of contract, fraud and negligent misrepresentation. On July 7, 2004 the Company entered into a settlement with the plaintiffs resulting in no material impact on the Companys financial condition or results of operations. In connection
with the settlement agreement the Company agreed to a supply agreement providing for a total purchase of $15.0 million of product purchase commitments with a minimum of $5.0 million of product purchases per year through 2007. Management believes
this commitment is within the normal needs of the business. The Company is also a party to various other lawsuits arising out of the normal conduct of its business, none of which, individually or in the aggregate, are expected to have a material
adverse effect on the Companys results of operations or financial position.



Inflation



Prices of imprintable sportswear
and accessories have experienced deflation as suppliers have moved manufacturing to lower cost offshore locations. Price deflation has not historically had a material effect on Broders and Alphas operating results during the periods
presented, since falling input costs for individual products have generally been passed on to customers on a constant gross profit per unit basis or unit volume growth has not been accompanied by a proportional increase in operating costs. However,
we cannot assure you that this trend will continue in the future.



Broder and Alpha have historically realized, and Broder following the Transactions expects to continue to realize, slightly higher sales and gross profit in the third and fourth quarters of the fiscal year. On a combined pro forma basis for
2002 and 2003, 20% of total net sales occurred in the first quarter, 28% in the second quarter, 27% in the third quarter and 25% in the fourth quarter.



Forward-Looking Statements



We caution readers that this report includes forward-looking statements as that term is used in the Private Securities Litigation Reform Act
of 1995. Forward-looking statements are based on current expectations rather than historical facts and they are indicated by words or phrases such as anticipate, believe, estimate, expect,
plan, intend, likely, will, should, and similar words or phrases. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual
results, performance or achievements to be materially different from any future results, performance or achievements expressed



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##### Table of Contents

or implied by such forward-looking statements. Some of the factors that would affect our financial performance, cause actual results to differ from our
estimates, or underlie such forward-looking statements, are set forth in various places in this report. These factors include:



| |  | general economic conditions;
| | - | ----------------------------



| |  | risks related to the integration of Alpha and our organizational changes;
| | - | -------------------------------------------------------------------------



| |  | risks related to our overall acquisition strategy;
| | - | --------------------------------------------------



| |  | significant competitive activity, including promotional and price competition;
| | - | ------------------------------------------------------------------------------



| |  | changes in customer demand for our products and our ability to protect and/or expand customer relationships;
| | - | ------------------------------------------------------------------------------------------------------------



| |  | price volatility of raw materials;
| | - | ----------------------------------



| |  | success of our marketing and advertising programs;
| | - | --------------------------------------------------



| |  | risks associated with new products and new product features;
| | - | ------------------------------------------------------------



| |  | collectibility of receivables from our customers;
| | - | -------------------------------------------------



| |  | ability to attract and retain key personnel;
| | - | --------------------------------------------



| |  | costs of insurance and other selling, general and administrative expenses; and
| | - | ------------------------------------------------------------------------------



| |  | other risk factors listed in our reports filed with the SEC from time to time.
| | - | ------------------------------------------------------------------------------



These and other applicable risks are described under the caption Risk Factors in the Companys Registration Statement on Form S-4
filed with the SEC. We assume no obligation to publicly update or revise any forward-looking statement made in this report, whether as a result of new information, future events, changes in assumptions or otherwise, after the date of this report.
All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------



As of June 30, 2004, we had $100.9 million of debt outstanding under our new revolving credit facility. Our new revolving credit facility is subject to
variable interest rates. Accordingly, our earnings and cash flow are affected by changes in interest rates. Assuming the June 30, 2004 level of borrowings, and further considering the interest rate protection agreements currently in place (see
following paragraph), we estimate that a one percentage point increase in interest on our variable rate debt agreements would have increased interest expense for the three and six months ended June 30, 2004 by approximately $0.2 and $0.4 million.



Broder has entered into interest rate protection agreements
whereby it has contracted to pay a fixed interest rate in exchange for receipt of a variable rate. Of the $30.0 million of notional principal amount under interest rate protection agreements, $20.0 million terminates in May 2005 and $10.0 million
terminates in October 2008. Broder has elected not to apply hedge accounting for the currently outstanding interest rate protection agreements. Accordingly, Broder records its interest rate swaps at fair value on the balance sheet and records gains
and losses on these contracts as well as the periodic settlements of these contracts through its statement of operations. The Company recorded other income (expense) of approximately $1.0 million and less than ($0.1) million during the three months
ended June 30, 2004 and 2003, respectively. The Company recorded other income of approximately $1.1 million and $0.1 million during the six months ended June 30, 2004 and 2003 respectively.



|Item 4. | Controls and Procedures
|------- | -----------------------



Evaluation of Disclosure Controls and Procedures



Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Companys principal executive officer and principal financial officer
concluded that its disclosure controls and procedures are effective, and provide reasonable assurance that the material information required to be included in the Companys periodic SEC reports is recorded, processed, summarized and reported
within the time periods specified in the relevant SEC rules and forms.



Changes in Internal Controls



On May 10, 2004
the Company completed the second of four stages of its information systems integration plan related to the merger of Broder and Alpha. This enhancement combines the purchasing, forecasting, inventory control and inventory costing systems onto a
single platform. The Chief Executive Officer and Chief Financial Officer expect that this change in systems and related controls will further enhance our internal controls and will provide greater visibility and more timely information.



Other than this May 10, 2004 transition, there were no significant changes
to our internal controls or, to our knowledge, any other factors that could significantly affect our internal controls, subsequent to the date of our Chief Executive Officers and Chief Financial Officers last evaluation of our internal
controls, including any corrective actions with regard to significant deficiencies and material weaknesses.



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##### Table of Contents

PART IIOTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------



None.



|Item 2. | Changes in Securities and Use of Proceeds
|------- | -----------------------------------------



None.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------



None.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------



None.



|Item 5. | Other Information
|------- | -----------------



None.



|Item 6. | Exhibits and Reports on Form 8-K
|------- | --------------------------------



| | (a) | Reports on Form 8-K
| | --- | -------------------



None.



| | (b) | Exhibits:
| | --- | ---------



|           |  |                                                                                                                                                                                  
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description                                                                                                                                                                      
|           | 
|10.19      |  | 2004 Executive Stock Option Plan.                                                                                                                                                
|           | 
|31.1       |  | Certification Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|           | 
|31.2       |  | Certification Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|           | 
|32.1       |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601(b)(32) of Regulation
S-K).
|           | 
|32.2       |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601(b)(32) of Regulation
S-K).



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##### Table of Contents

SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                |  |  |  |                   |  |     |  |                                                                                                   
|--------------- |  |  |  | ----------------- |  | --- |  | --------------------------------------------------------------------------------------------------
|August 10, 2004 |  |  |  | BRODER BROS., CO.
|                |  |  |  |                  
|                |  |  |  |                   |  | By: |  | /s/    VINCENT TYRA                                                                               
|                |  |  |  |                   |  |     |  | Vincent Tyra President, Chief Executive Officer and Director (Principal Executive
Officer)        
|                |  | 
|August 10, 2004 |  |  |  |                  
|                |  |  |  |                  
|                |  |  |  |                   |  | By: |  | /s/    DAVID HOLLISTER                                                                            
|                |  |  |  |                   |  |     |  | David Hollister Chief Financial Officer and Secretary (Principal Financial and Accounting
Officer)



23